Abstract
In this paper, we develop a spatial price network equilibrium model with marketable pollution permits using the theory of variational inequalities. The model has the distinctive feature that it allows for the imposition of environmental quality standards for both the producers at the supply markets as well as on the transportation links. The permits are distinct and recognize that producers may emit pollutants that are different from those that are emitted during transportation. We provide qualitative properties of the equilibrium supply, shipment, demand, marginal cost of emission abatement, license, and license price pattern as well as a numerical scheme for the computation of the equilibrium pattern. We conclude with several numerical examples for illustrative purposes.
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